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Penalties for incorrectly treating employees as contractors

Business owners need to be aware of the difference between an employee and a contractor so that they are able to meet their tax requirements.

It is illegal for businesses to incorrectly treat their employees as contractors. This is because it allows businesses to unlawfully reduce their labour costs and gain an unfair advantage over their competition.

In general, an employee:

-performs work under the direction and control of their employer

-bears no financial risk

-entitled to have superannuation contributions paid into a nominated fund by their employer

-has income tax deducted by their employer

A contractor:

-has a high level of control on how and when they complete work

-bears responsibility and liability of poor work

-pays their own superannuation

-pays their own tax and GST to the ATO

Businesses need to be aware that incorrectly treating an employee as a contractor can result in financial penalties and charges, such as the PAYG withholding penalty and superannuation guarantee penalty.

The ATO is using a combination of education and compliance action to ensure that all businesses are on a level playing field.

Posted on 10 January '14 by , under Tax.

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Transition to retirement

The transition to retirement (TTR) strategy allows you to access some of your super while you continue to work.

You are able to use the TTR strategy if you are aged 55 to 60. You can use it to supplement your income if you reduce your work hours or boost your super and save on tax while you keep working full time.

  • Starting a TTR pension: To start your TTR pension, transfer some of your super to an account-based pension. You have to keep some money in your super account so that you can continue to receive your employer's compulsory contributions as well as any voluntary contributions you may be making.
  • Government benefits and TTR: The benefits you or your partner receive might be impacted if you choose to opt for this strategy. How and what exactly will change might become clearer upon discussing this with a Financial Information Service (FIS) officer.
  • Life insurance and TTR: In some cases, the life insurance cover you have with your super may stop or reduce if you start a TTR pension – check this before making any decisions or changes.

TTR can help ease your mind as you transition into retirement but it can be a bit complex. Before you choose whether you want to use TTR to reduce work hours or save on tax, or even if you want to use TTR altogether, you should figure out how this will impact all aspects of your finances.

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